Agreement for Sale of Shares to another Shareholder (A131)

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This agreement is suitable for use where both Seller and Buyer are the only Shareholders in a Company and the effect of the sale will be to transfer control of the Company to the Buyer.

This five page document contains 7 clauses covering

  • sale and purchase of shares
  • price
  • warranties
  • completion
  • law and jurisdiction
  • shareholders’ agreement
  • a general clause addressing variation, the scope of the agreement, representation, severability, assignment and third party rights.

This agreement is shorter than many such agreements because of the relationship of the parties, both of them being shareholders and represented on the board of the company.

Warranties are therefore limited and the contract deals primarily with the number and shares to be sold, price, actions on completion – payment and resignation of directors.

The agreement provides for the cancellation of a shareholders’ agreement if this exists.

You need this document if you want to transfer control of a company from a Seller to a Buyer, where the Seller and Buyer are the only shareholders in a company.

This agreement is designed for use where the two parties are the only shareholders in a company and one of them wishes to sell his/its holding to the other. In such circumstances where, as our agreement contemplates, both parties are represented on the board of the company and both of them are parties to a shareholders’ agreement, very little formality is required: both of them should already know about the company’s business without the buyer having to rely on ‘due diligence’.

The main concern from the Buyer’s point of view is to ensure that the shares which he is acquiring are beneficially owned by the Seller and that no third party has any undisclosed interest in those shares. The Buyer will also want to be sure that the sale is only completed when the Seller’s directors resign (or the Seller resigns as director) from the board.

Turning to the specific clauses:

1. SALE & PURCHASE OF SHARES

This sets out the transaction and refers to a schedule which specifies the number of shares being transferred.

2. PRICE

This contains the price payable by Buyer to Seller and makes it clear that payment will be due on completion.

3. WARRANTIES

This deals with the point made above: the Seller warrants to the Buyer that he is the beneficial owner of the shares and that the same situation will apply at completion. In the interim period, Clause 3.3 makes it clear that the Seller will not do anything to prejudice the business of the Company. Clause 3.4 provides for an optional indemnity to be given to Buyer by Seller in the event that Seller is in breach of the warranties in clause 3.

4. COMPLETION

This deals with the mechanics of the transaction – the completion date – i.e. the date when the shares will be transferred and resignation letters from Seller’s nominated directors (or, where Seller is a director, his resignation) will be handed over. Payment will also be made for the shares at this point (4.2). Clause 4.3 provides for payment of interest in the event that all or part of the purchase price is paid late.

If part of the deal is that the Seller will not compete with the Company for a specified period after selling his shares, then clause 4.5 is recommended so as to be sure that he is legally obliged not to compete with the company for a specified period. It is in italics and these can be removed if it is to apply, otherwise the clause itself should be deleted.

5. GENERAL PROVISIONS

This clause sets out a number of standard “boiler plate” provisions.

6. GOVERNING LAW AND JURISDICTION

The governing law of the agreement is English law and the English courts are to have exclusive jurisdiction in relation to any disputes arising from the agreement.

7. SHAREHOLDERS’ AGREEMENT

If the Buyer and Seller are the two parties to a Shareholders’ Agreement, this clause will be applicable and the effect will be for the Shareholders’ Agreement to be terminated on completion.

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